Sam’s Club tries to find its balance with job cuts
Last week, Sam’s Club announced it was laying off about two percent of its workforce, roughly 2,300 people, in an effort to bring its club staffing in line with performance. For many industry watchers, that news translated into Sam’s looking to bring its costs down so that it could increase profitability and, in turn, improve its competitive situation versus chief rival Costco and others, including Amazon.com.
Until now, according to the retailer, all Sam’s Clubs were staffed similarly, regardless of performance. Management has also come to believe the organization is top heavy. Just under half of those losing their jobs will be salaried assistant managers.
"We felt this was the right move to make sure we are positioning ourselves for growing in the future," said Bill Durling, a spokesperson for Sam’s Club, told The Associated Press. "We are trying to rebalance our resources in the field to make sure we are investing in the clubs that have the higher growth potential and balancing resources across the chain."
According to The Wall Street Journal, Sam’s made a similar move in 2007 when it consolidated 3,000 salaried manager positions at its clubs. Since that time, however, the number of managers has steadily risen until the chain made its latest move.
Affected salaried employees will continue to get paid for the next 60 days while they are given the opportunity to apply for other jobs with Walmart. Those who fail to find positions will be offered severance packages at the end of their employment.
In related news, Walmart announced it was closing its lone Más Club membership warehouse. The club, which opened as a test in 2009, was intended to offer merchandise targeted for a Latino audience.
Discussion Questions
Will the layoffs announced by Sam’s Club help improve its competitive position against Costco and others? What else must the chain do to achieve growth and gain market share?
Now here’s some fresh thinking. Performance and sales not up to expectations? Well then cut out people who serve customers – the company’s “most valuable resource.” After all, people are a cost center not revenue generators. That could be true of a lot of management I suppose.
I’m still working on the idea of “laying off about two percent of its workforce, roughly 2,300 people, in an effort to bring its club staffing in line with performance.” I’ve always thought performance was adjusted by people, not people adjusted by performance. Who knew?
All retailers have to respond to competition and market trends. They must adjust their business model to fit both the current climate, as well strategic position for the future.
The retail class of trade called “Club Stores” is a very unique business model. The margins made selling products are razor thin in order to offer very compelling prices and bundles to club members. Without “good value” for members, traffic and market basket drop dramatically, and rapidly.
One of the most critical components of a club store’s SG&A (Sales, General & Administrative costs) is labor costs. The fastest way to reduce SG&A is to reduce labor costs.
There is no question that Amazon has been competitive threat to all retailers, including Costco and Sam’s Club. Online ecommerce has accelerated price erosion and declining margins in most categories, including food and packaged goods.
However, Sam’s Club has to be extremely careful in trying to “expense cut their way to profitability.” If service levels drop too low, consumers will quickly shop elsewhere, including Amazon Fresh and others with routine home delivery.
Long term survival will require differentiation. For many consumers, Costco has done a much better job than Sam’s in terms of differentiating their assortment and adding higher end value merchandise.
While Costco and Sam’s have historically competed on low price and value bundles, the internet now wins that game most of the time. Sam’s will need to look at ways to differentiate value via convenience in store, and through Omni-channel strategies offering consumer choice for items beyond the store.
Obviously, Sam’s Club needs to get leaner and meaner to compete against mighty Costco. However, I’m not sure cutting jobs is the right type of long-term strategy.
This will do nothing but deflate those aspiring to leadership positions throughout their ranks and further perpetuate Sam’s/Walmart’s reputation in the marketplace as a last-resort career choice.
Surely, there’s a better way to trim costs and boost sales….
Unless these 2,300 employees were standing around and totally unproductive, it is difficult for me to believe that there will NOT be some impact on the customer’s experience whether it be product in stock or check stands open, or general service issues. When those things happen, you become less competitive, not more.
More to the point, Sam’s should consider looking at shaking up the line-up of categories and products. Very little changes in Sam’s from one trip to the next and clearly part of the allure of club shopping is being pleasantly surprised by new products or in and out deals. Perhaps they have become too stale and predictable to their casual shoppers.
Whenever I see retailers cutting staff to become “more competitive,” I harken back to my days as a retail store manager when my district supervisor would sarcastically chide me about “managing the business down to a level I could handle.” I see the parallels to that problem in a narrow strategy focused only on expense reduction.
The Sam’s/Costco comparison is as outdated as Walmart/Target. The competitive landscape has shifted profoundly and become more crowded as office supply retailers, Amazon and other online disruptors expand into new categories, explore bulky shipment options and double down on their B2B businesses.
At the same time, a slew of retailers have recently announced store closings and many are quietly paring down the layered, merchant-centric organizations that made sense back when manufacturers sold to buyers who decided which stores got what. These tech-centric times have retailers rejiggering all over the place and it makes sense for Sam’s to do the same at the store level, particularly as self check and Scan and Go expand.
I like many of the changes that Sam’s is making under Rosalind Brewer, including analyzing members’ journeys from sign up to renewal more closely and accelerating its club upgrades. Walmart’s recent integration of Sam’s e-commerce into Walmart global e-commerce is another move that should begin to pay off in the coming months.
Retail is in a state of reinvention. Sam’s is no exception.
The layoffs by Sam’s Club won’t improve its competitive position … it’s just a sleeve out of its vest if improving sales and SOM is its real objective.
To achieve growth and gain market share, Sam’s must fashion itself more to the preferences of its most profit-producing customers, much like Costco does.
Cutting your way to profitability rarely works particularly at retail where labor cuts usually result in lost sales via OOS and less customer service. I realize that customer service is not a primary draw to people who shop warehouse clubs, but cutting staffing at a management level can result in a less efficient workforce and affect sales and resulting profits. I do not know this for a fact, but I believe that Costco devotes MORE cost to labor with higher wages and lower turnover, and this has helped them in their service level and their efficiency.
Sam’s Club stores have never achieved the “treasure hunt” level of excitement and creativity that has helped make Costco very successful. They should look at merchandising and differentiation from their current strategies to gain traction.
Well there really aren’t any others, Costco is it. And no, layoffs won’t solve the problem. Walmart should do a better job of positioning themselves with their customer base. They should focus like a laser on small business (SBO) and leave the country club set to Costco.
However, they have got to realize that much of the small business community is much smarter than they are, and are consummate price checkers. They have to make sure that they offer the absolute best prices on small business staples like tobacco and candy. Sam’s often has assumed its prices were good when they really weren’t the best. Also, smaller cases might be a help as SBOs have limited resources and forcing a 12 pack sale when a 6 pack is what is needed is counterproductive.
It all boils down to understanding your customer and Sam’s/Walmart hasn’t made a good effort.
I completely agree with Ian’s comments. I can’t say it any better.
When in doubt, lay off the most valuable resource, staff. Maybe we can help ease the pressure of reduced staff by not shopping there.
Sam’s and Costco are similar business models but cater to different customer sets. Sam’s does a lot of business to business and Costco more to the final customer. Cutting the staff may increase their profitability but will do little to help Sam’s compete against Costco for Costco customers.
As with the similar announcement from J.C. Penney recently, I suspect that if they had gathered these 2,300 assistant managers together, they may have found the answers.
Instead, they remove the management level that is actually in the trenches daily. They have cut into the management layer closest to their customer and consolidated responsibilities to the level least in touch with the customer. In doing so, they reduce the chances of that higher level managers’ ability to gain that connection.
Let’s face it, Sam’s Club is little more than Walmart in boxes. Costco is an entirely different experience with a completely different structure of staffing, management, and most importantly – wage structure.
Certainly, Walmart can align staffing in Sam’s Club with performance levels. It will do nothing to improve or change performance.
Costco is an experience retailer. The experience, selection, and merchandising is ever changing. Their comp sales continue to outperform almost any retailer as proof of concept. At the same time Walmart and Sam’s Club are down or flat.
What must they do? Maybe ask those 2,300 associates and gain some value from their small severance. Otherwise, they will have to do something besides being cheap stuff in boxes. It isn’t working.
I think the layoffs will improve Sam’s financial position, but not its competitive position. Costco benefits because its only business is being a Costco, that appeals to higher income households. Sam’s Club just can’t shake the low image monkey on its back called Walmart. You can’t go into a Sam’s Club without realizing you are in a store owned by Walmart.
Great management starts with knowing where you are going and aligning performance to the CORRECT metrics. YOU MUST HAVE THE RIGHT METRICS FIRST.
Sam’s, Walmart and other retailers should evaluate their Key Performance Indicators (KPIs). They both still use Inventory, Turns, Sales and Profits to evaluate performance. These indicators are lagging indicators and fail to consider inflation, deflation. Until and unless the retailer really considers category market share (dollars and units) they will fail to reward the right behavior.
In 2007, the four wrong metrics were used to determine lay-offs. What is that old saying about doing the same thing and expecting different results? Associates are already rare in the clubs!
This is where we are seeing the economy continuing to decline right in the face of our invisible recovery. Walmart should consider the creation of a commercial accounts sales in this portion of the company. A large part of the business they attract to Sam’s Club is small businesses getting product and supplies for many reasons. Adding delivery would be a good idea too. If not for free, then surely at a small cost to the user.
No. This is not a competitive move, since it barely impacts net profits. Instead, it is more a reactive decision, that only impacts a few persons in the clubs, perhaps even negatively. It is a poor decision in managing their COC, and keeping promising managers in the growth stage of Sam’s Clubs.